International Posts Eye the Future

A recent business news item caught my eye. It seems the Dutch postal service, known as TPG, the British post office and Singapore Post have signed a joint venture agreement to form a cross-border mail company.

This company, expected to begin operations in October, will become the world's largest global business mailing company of its kind. It will be headquartered in Belgium, serve more than 200 countries and initially have revenues of about $450 million.

The three companies also have agreed to explore the development of domestic networks. It's interesting that TPG, the Dutch partner, will have the majority 51 percent stake, while the British post office and Singapore Post will each have a 24.5 percent share.

TPG is a global provider of mail, express and logistics services. It employs 115,000 people in 64 countries. It has sales of more than $8 billion and is listed on the New York Stock Exchange as TNT Post, with a ticker abbreviation of TP.

TPG has been on a global expansion of late. It probably began in 1996 with the Dutch Post's purchase of TNT, an Australian freight forwarder. The expansion continued with two purchases last month:

o The Schrader Group, a German logistics provider with revenues of $70 million. Schrader clients are in the consumer goods, retail and automobile business.

o A 51 percent stake in Barlatier, a French logistics provider. Barlatier has revenues of more than $40 million and provides logistics services to the pharmaceutical and electronics industries. TPG has indicated it will purchase the remaining 49 percent of Barlatier over the next few years.

Branching out a bit, TPG has agreed to create a joint company with the Koc Group of Turkey. Koc-TNT will provide integrated logistics services throughout Turkey and the region. Koc is a private company, so we don't know its revenues, but it has 37,000 employees.

In the United States, TPG has a controlling stake in Mail 2000, a company headed by former Postmaster General Paul Carlin. Mail 2000 is a company that specializes in "hybrid" mail. Hybrid mail is mail that is developed at a central location, distributed electronically to sites around the country close to its delivery destination, then printed and entered into the mail stream, generally close to or at the delivery post office. It offers the potential to provide overnight delivery service at the cost of a First-Class stamp.

It seems clear the Dutch Post is interested in all facets of delivery: intra- and intercountry mail, and logistics services. Perhaps the company envisions itself as the world's postmaster.

To that end, the company has been at the forefront of entering into innovative contracts with various direct mail marketing companies, and its senior managers are well-rewarded for success. I can recall a conversation I had about 10 years ago with the marketing director of the Dutch post office. We discussed that his compensation, including bonus, was higher than that of Tony Frank, then the USPS postmaster general.

As part of its global plan, the Dutch government, holder of about 43 percent of the shares of TPG, has recruited a distinguished supervisory board, roughly equivalent to a board of directors, to oversee its investment. Members include the former CEO of Telecom Italia; the current chief financial officer of KLM; the former executive vice president and CFO of Alcoa; and a professor of finance who is also a member of the international advisory board of DaimlerChrysler.

Britain's state-owned postal service, Royal Mail, has not been idle while the Dutch have been on their buying spree. In addition to the joint investment with TPG and Singapore Post, Royal Mail has been active in other areas. In May, the British post office purchased Extand, a French parcel delivery company, for $109 million. Extand primarily delivers parcels in France but also has operations in the Netherlands, Spain and Belgium.

To understand what it's like to deliver mail in another country, Royal Mail has purchased CityMail, a local mail delivery company in Sweden. CityMail has about 5 percent of the mail market in Sweden, which is deregulated. A couple years ago, Royal Mail also purchased Citipost, a U.S. local delivery company, providing document/publication delivery service in North America, Europe and the Pacific Rim.

Royal Mail is obviously looking ahead to competing in a deregulated postal market. The European Union has a deregulated

market for mail weighing more than 350 grams, or about 12 ounces. This mail accounts for about 3 percent of the market. The EU commissioners responsible for postal issues are planning to recommend a reduction in the monopoly coverage to mail weighing less than 50 grams by 2003. This would result in about 23 percent of the EU market being open to competition. The commissioners' proposal will go before the European Parliament in October.

It seems clear that each side of the Atlantic has a different perspective as to the future of postal services and their growth opportunities. It certainly helps that European posts have a freedom to operate, a profit motive and executive compensation programs that reinforce their governments' view of these opportunities.

These freedoms are much more than those that were contemplated in H.R. 22, the postal reform legislation that was considered, however briefly, in the current session of the Congress.

If a new version of postal reform is to be considered, perhaps it should give the USPS some of the operational flexibility that its competitors already have. One question the postal service will have to contemplate is: Which of its monopoly powers is it willing to give up to obtain the flexibility it needs to compete?

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